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TD Forecast An August Start For The BCB's Easing Cycle

BRAZIL
  • BCB maintained the Selic rate unchanged at 13.75% for the seventh consecutive meeting. This time it acknowledged that the resumption of the tightening cycle is now less likely.
  • The uncertainty about the fiscal framework was also confirmed as an upside risk for the inflationary scenario and inflation expectations.
  • The BCB maintained its hawkish bias by repeating that the Committee remains vigilant, assessing if the strategy of maintaining the Selic rate for a long period will be enough to ensure the convergence of inflation.
  • However, TD underline a key change in wording regarding forward guidance. As in the previous press release, Copom emphasized that it will not hesitate to resume the tightening cycle if the disinflationary process does not proceed as expected. However, this time the BCB acknowledged that the latter is a less likely scenario.
  • All in all, TD expect the BCB to maintain the Selic rate unchanged for a few more months. In particular, they expect the central bank to deploy its first rate cut in Q3 (August). The OD futures curve is also pricing in August as the month for the beginning of the cutting cycle. TD expect a rather neutral market reaction.
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